2018 (2) TMI 205 - AT - Central Excise

CENVAT credit - inputs - appellant cleared certain inputs as such during the period November 2011 to December 2013 and instead of reversing the credit availed on inputs, removed as such, they paid duty on transaction value for the inputs cleared as such - Held that - The Show Cause Notice has been issued alleging that by such payment of duty they passed on ineligible credit - It is apparent that such excess duty was paid only due to wrong interpretation of law or wrong method of calculation of the amount to be paid when the inputs are removed as such. Therefore, the penalty imposed is unwarranted - appeal allowed.

Summary

Issues:
1. Incorrect utilization of cenvat credit on inputs cleared "as such"
2. Imposition of penalty under section 11AC of the Central Excise Act, 1944

Analysis:
1. The appellants, engaged in manufacturing bulk drugs, utilized cenvat credit of duty paid on inputs but cleared certain inputs "as such" during November 2011 to December 2013 without reversing the credit availed. Instead, they paid duty on the transaction value for these inputs, resulting in an excess payment of &8377;1,02,279. The Department alleged that this utilization of credit was incorrect and against the law, as it amounted to passing on ineligible credit. A Show Cause Notice was issued, leading to the confirmation of the demand, interest, and imposition of a penalty by the original authority and upheld by the Commissioner (Appeals).

2. The appellant contended that they mistakenly paid excess duty due to a wrong interpretation of Rule 3(5) of the Cenvat Credit Rules, 2004, when removing inputs "as such." They argued that they had already paid the entire duty liability along with interest before the Show Cause Notice was issued, even though they believed they were not liable for the duty as alleged. The appellant maintained that the penalty imposed should be set aside, as the excess duty payment was a result of a misinterpretation of the law.

3. The respondent supported the findings of the impugned order, reiterating the Department's stance on the matter. However, the Tribunal, after hearing both sides, noted that the excess duty was paid due to a wrong interpretation of the law or miscalculation when clearing inputs "as such." The Tribunal found the penalty imposed under section 11AC of the Central Excise Act, 1944, unwarranted in this situation and decided to set it aside while upholding the duty demand and interest.

4. In conclusion, the Tribunal modified the impugned order by setting aside the penalties imposed without affecting the duty demand or interest. The appeal was allowed on these terms, with any consequential reliefs granted accordingly.